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Beyond the Horizon: Unveiling Opportunities in Aerospace

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Beyond the Horizon: Unveiling Opportunities in Aerospace

Apr 12, 2024

Air travel has undoubtedly ‘shrunk’ the perception of the world and facilitated greater interaction between people and cultures and enabled trade. International travel has never been easier, but what’s next?

The aerospace industry; with a global fleet of approximately 30,000 commercial aircrafts; nearly 9000 active satellites not to mention rocket, military aircraft, and drones, is vast. New technologies are transforming the industry and opening new commercial opportunities – not only bringing the world closer but redefining roles and expanding capabilities outside our imagination.

A post-pandemic resurgence in aerospace in the private sector

In the wake of the pandemic, aerospace companies have witnessed a notable surge in demand for airplanes, spacecraft, satellites and related products and services. Large orders have poured in, contributing to a substantial increase in manufacturing backlogs across the industry. After the turbulence and uncertainty of the pandemic, this uptick signals a renewed confidence in air travel and a promising outlook for the aerospace sector.

Increasingly, private companies are launching rockets, deploying satellites and undertaking the kinds of orbital activities that not long ago would have been the domain of governments, says Willem Sels, Global CIO of HSBC Global Private Banking.

They have already made remarkable strides in the aerospace arena, showcasing their ability to send private citizens into space and demonstrating the viability of reusable space crafts. Year on year the number of flights has grown, with global passenger kilometres rising by 16.6 per cent1. True, space tourism is decades away, even if a limited number can experience weightlessness for a small fortune. However, aircrafts travelling over Mach 5 speed (3,500 mph) is a real near-term possibility given that one private company has developed and tested a working engine that can operate both as a jet engine in the atmosphere (breathing air) and switch to being a rocket engine in space. Potentially this would allow a person to travel from London to New York in under 2 hours and from London to Sydney in about 4 hours compared to the 20 hours with today’s fastest airliners2.

These types of innovations are increasingly attracting the attention of entrepreneurs and other companies in the sectors, who with their investments bring renewed vigour and spur on further advancements. 

The data and tech revolutions are reinforcing the growth

The growth of the aerospace sector has further been amplified by the increasing demand for high quality data as well as the accelerating technology revolution in complementary fields.

Advanced technological developments have enabled the arrival of very small, relatively cheap satellites, not only reducing barriers to entry for new commercial players but further encouraging scientists in the discovery of whole rafts of new applications for satellites. Says Kevin Lyne-Smith, Global Head of Equities at HSBC Global Private Banking and Wealth.

Lyne-Smith adds that “Drones for example, are evolving rapidly, with AI software providing some semi-autonomous features allowing them to function independently. These types of transferrable technologies further enable crossover integration to the market by existing players.”

Although technological progress has been astonishing over the course of recent decades, there is limited room for error in manufacturing and safety standards in this arena. High standards for corporate governance should be closely monitored. For instance, the cost of being forced to ground just one type of aircraft could run into the hundreds of millions of dollars and have knock-on effects across the value chain.

The increasing demand for data and seamless interconnectivity is also playing a role in driving growth of the industry. As the need for real-time information grows, small satellites have emerged as key enablers, offering agile and cost-effective solutions for a variety of applications. Those companies that are leveraging these data capabilities, stand to benefit from tapping into the need for high-speed, low-latency data transmission via private low earth orbit satellite solutions. Representing a whopping 96 per cent of all spacecraft launched in 2022 these satellites are gaining good prominence and further indicate the industry’s growth, at the fingertips of those who are ready to embrace3.

Timing is key in seizing the right opportunities

“Following several decades of de-prioritisation by governments and limited investment, space travel and exploration appear now to have a new vigour from influential and wealthy individuals with the required resources to pursue these kinds of passion investments.” Says Lyne-Smith.

Whilst for some markets, this is an area to help establish their foothold on innovation, for others aerospace developments represent an opportunity to improve even fundamental infrastructure.

Lyne-Smith says it’s important to recognise that the recent launch of low-earth satellite communication networks is significant for emerging markets. Where fixed infrastructure assets such as telephone networks or electricity grids may not be fully stable or even available.

For companies involved in aircraft manufacturing, spacecraft development, satellite deployment, and aerospace services, this new catalyst of activity represents a chance to capitalise on the industry’s momentum. At the same time, active management and stock selection within the sector remains paramount, as the separation of winners from losers may be critical for a sector where few companies often compete for lucrative long-term contracts. Though new technology is opening up the sector to new players, barriers to entry remain high attributed to tight regulation and large research and development costs. This is resulting in a relatively concentrated sector meaning portfolio diversification for investors is key. 

As the demand for air travel continues to soar and data requirements escalate, aerospace companies find themselves at the nexus of transformative trends that are reshaping the future of aviation and space exploration. Those that strive to adopt new technologies and embrace the innovation are those that will ultimately come out on top.

1 Source: IATA, HSBC Global Private Banking, March 2024 ↩

2 Source: Q2 investment outlook report ‘A fertile ground for investment returns 2024 ↩

3 Source: Bryce Tech small satellites report, 2023. ↩

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